In for the long haul

China Daily (USA) - - SHANGHAI - ByXUJUNQIAN in Shang­hai xu­jun­qian@chi­nadaily.com.cn

Pur­chased for 800 mil­lion yuan ($119 mil­lion) in 2014, Mary Kay’s 13-floor of­fice build­ing in Shang­hai’s up­scale Jing’an dis­trict, which has up to 27,000 square me­ters of space and neigh­bors the likes of cos­met­ics con­glom­er­ates such as L’Oreal and Es­tee Lauder, rep­re­sents the beauty com­pany’s sin­gle largest in­vest­ment in China.

To Paul Mak, the com­pany’s China CEO, it is a worth­while in­vest­ment that will boost Mary Kay’s ef­forts to drive growth and fur­ther pen­e­trate the Chi­nese beauty mar­ket, now the largest in the world.

Dur­ing an in­ter­view fol­low­ing the cer­e­mony to kick off the op­er­a­tion of the new build­ing, Mak re­vealed that the sales from third tier or lower cities and towns last year had con­trib­uted to more than 70 per­cent of the com­pany’s to­tal. The com­pany is bullish that this trend will con­tinue, help­ing main­tain Mary Kay’s dou­ble-digit growth in China.

While the com­pany does not dis­close its rev­enue in China, it had men­tioned be­fore that as of 2013, its sales in China had grown by 75 times since 1995 when it de­buted in the mar­ket.

In 2014, China had for the first time sur­passed the Dal­las­based com­pany’s home mar­ket as its largest and “most im­por­tant mar­ket”, said the com­pany’s global CEO David Holl.

The same year, at a time when many real es­tate com­pa­nies in China were sell­ing prop­er­ties to lighten their as­sets, Mary Kay be­came the first for­eign cos­met­ics com­pany to in­vest in China’s volatile prop­erty mar­ket with the ac­qui­si­tion of its of­fice build­ing.

The move has been con­sid­ered a bold one, es­pe­cially since Mary Kay’s com­peti­tors had been pulling out of the mar­ket. Revlon, the first for­eign cos­met­ics brand to en­ter China in 1976, had ear­lier that year an­nounced its exit from the Chi­nese mar­ket, cit­ing un­der­per­for­mance. Just one week later, L’Oreal pulled its Garnier brand out of China, claim­ing that the move would help the group bet­ter fo­cus on the growth of its other brands.

Mak said that the ac­qui­si­tion of the of­fice build­ing does not rep­re­sent an in­vest­ment in the prop­erty sec­tor, but is rather a tes­ta­ment to the com­pany’s con­fi­dence in China’s cos­met­ics mar­ket, or more specif­i­cally, its di­rect sales mar­ket.

Sta­tis­tics from the Chi­nese Academy of Di­rect Sell­ing Man­age­ment showed that by 2015, di­rect sales had be­come a 200-bil­lion-yuan in­dus­try, with skin­care and health sup­ple­ments be­ing the two pil­lar prod­ucts. The in­dus­try size is pro­jected to dou­ble over the next decade.

China’s di­rect sell­ing mar­ket is a small one that is dom­i­nated by the big play­ers. As of 2015, the mar­ket had fewer than 80 com­pa­nies, a re­sult of the gov­ern­ment reg­u­la­tions in­tro­duced in 2005 to clamp down on the mis­lead­ing and ma­nip­u­la­tive sales tac­tics by many com­pa­nies. Ever since, only li­censed busi­nesses were al­lowed to engage in di­rect sales of their prod­ucts.

“One of our key strate­gies is to keep our roots in big Chi­nese cities, in­clud­ing Shang­hai and Bei­jing, while ex­pand­ing our pres­ence and en­hanc­ing our ser­vice level in lower-tiered cities,” said Mak, who leads an all-fe­male sales team of more than one mil­lion.

“Our big­gest ad­van­tage is the peo­ple. They help us to rapidly pen­e­trate the lower-tiered cities with our prod­ucts with­out shop­ping malls or sales coun­ters, which is cru­cial in a large and seg­mented mar­ket like China,” he added.

Mary Kay has also cho­sen to stay clear of both the on­line and off­line mar­kets in China, a strat­egy which Mak said is aimed at chan­nel­ing the fo­cus to its sales­peo­ple. This em­pha­sis on the hu­man el­e­ment can be seen at Mary Kay’s show­room in Shang­hai — the brand’s only one in China — where a sales agent has to be in­volved ev­ery time a cus­tomer re­quests to test or buy a prod­uct.

Look­ing ahead, Mak re­vealed that the com­pany is eye­ing a piece of the health sup­ple­ments mar­ket and plans to launch its first prod­uct in that cat­e­gory in the com­ing years.

“To be in the health in­dus­try, I am push­ing my­self and my staff to stay healthy. Per­son­ally, I have lost 15 kilo­grams over the past two years,” said Mak.

“Ev­ery­one is talk­ing about hav­ing a healthy life­style these days, but there still is a huge head room about how to keep healthy in the coun­try,” he added.

PRO­VIDED TO CHINA DAILY

Mary Kay China CEO Paul Mak.

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